Business Law ch 16

The articles of incorporation is also known as the ________.

corporate charter

A director or corporate officer who usurps a corporate opportunity would be violating the director's fiduciary duty called the ________.

corporation

A system in which each shareholder votes the number of shares he or she owns on candidates for each of the positions open is known as cumulative voting.

false

An S corporation can have nonresident aliens as shareholders.

false

An S corporation election is made by filing a Form 2553 with the Federal Trade Commission

false

An S corporation must pay federal income tax at the corporate level.

false

Corporations are not allowed to enter into contracts in their own name

false

Corporations cannot provide their articles of incorporation online.

false

Foreign corporations can elect to be taxed as an S corporation.

false

Preferred stockholders are given the right to vote for the board of directors of the corporation.

false

Provisions concerning the limitation or regulation of powers of the corporation cannot be included in the articles of incorporation.

false

Shareholders have unlimited liability for the debts and obligations of a corporation.

false

Shares that are repurchased by a corporation are called unissued shares.

false

The bylaws of a corporation must be filed with a government official.

false

The shareholders of a corporation act as agents of the corporation.

false

Treasury shares cannot be reissued by a corporation.

false

A contract between a corporation and a holder that contains the terms of a debt security is known as a(n) ________.

indenture agreement

Authorized shares that have not been sold by the corporation are known as ________

issued shares

A(n) ________ is a member of a board of directors who is not an officer of the corporation.

outside director

) ________ is a doctrine that says if a shareholder dominates a corporation and uses it for improper purposes, a court of equity can disregard the corporate entity and hold the shareholder personally liable for the corporation's debts and obligations.

piercing the corporate veil

Shareholders are owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation.

true

The articles of incorporation must contain the name and address of every incorporator.

true

The board of directors makes policy decisions concerning the operation of a corporation.

true

The shareholders of a corporation have the absolute right to amend the bylaws

true

Explain the CEO and CFO certification provision of the Sarbanes-Oxley Act (SOX) of 2002.

accurate handling financial reports

A corporation that is incorporated in another country is known as a(n) ________ corporation.

alien

Only outstanding shares have the right to vote.

true

A note is a long-term debt security that is secured by some form of collateral.

false

17) Which of the following is true of a corporation's incorporation in a state? A) Domestic corporations can incorporate in only one state. B) Domestic corporations can incorporate in all states in which they conduct business. C) Alien corporations can only incorporate in one state. D) Foreign corporations can incorporate in more than one state.

A

24) Which of the following is true of an S corporation? A) It can have no more than 100 shareholders. B) Only a foreign corporation can become an S corporation. C) It is taxed at the corporate level. D) It must be a member of an affiliated group of corporations.

A

26) ________ is a type of equity security that represents the residual value of a corporation. A) Common stock B) Preferred stock C) Cumulative preferred stock D) Participating preferred stock

A

28) Stock for which any missed dividend payments must be paid in the future to the preferred shareholders before the common shareholders can receive any dividends is known as ________ stock. A) cumulative preferred B) noncumulative preferred C) common D) participating preferred

A

31) A contract between a corporation and a holder that contains the terms of a debt security is known as a(n) ________. A) option contract B) right of first refusal C) indenture D) shareholder voting agreement

A

5) The ________ own(s) a corporation. A) shareholders B) board of directors C) CEO D) corporate officers

A

72) Which of the following is true of shareholders? A) They cannot enter into contracts that bind the corporation. B) They cannot vote to elect the board of directors. C) They cannot take active charge in deciding fundamental changes in the corporation. D) They are considered as agents of the corporation.

A

73) When is the annual shareholders' meeting held? A) according to the date fixed in the bylaws B) at the discretion of the board of directors C) only if and when there is an organizational crisis D) only when necessary to elect a new board of members

A

77) Bilkis Brans has 20,000 outstanding shares with four shareholders. Ester owns 9,000 shares, Mendez owns 4,000 shares, Judy owns 4,000 shares, and Aaron owns 3,000 shares. Suppose that two directors of the corporation are to be elected from a potential pool of five candidates. Ester favors candidates 1 and 5, Mendez favors candidates 2 and 4, Judy favors candidates 3 and 4, and Aaron favors candidates 2 and 3. If straight voting occurs, which of the two candidates are likely to win? A) candidates 1 and 5 B) candidates 1 and 4 C) candidates 2 and 3 D) candidates 2 and 4

A

80) According to the Revised Model Business Corporation Act (RMBCA), what establishes a quorum to hold a meeting of the shareholders? A) a majority of the outstanding shares B) a majority of the unissued shares C) a majority of the treasury shares D) a majority of the liquidated shares

A

84) A member of the board of directors who is also an officer of the corporation is known as a(n) ________. A) inside director B) ombudsman C) registered agent D) shareholde

A

85) ________ are employees of a corporation who are appointed by the board of directors to manage the day-to-day operations of the corporation. A) Corporate officers B) Shareholders C) Registered agents D) Ombudsmen

A

121) According to priority, which of the following claimants is the last to be paid after a corporation's assets have been liquidated? A) creditors B) common stockholders C) preferred shareholders D) bond holders

B

13) A corporation is referred to as a(n) ________ corporation in the state in which it was formed. A) foreign B) domestic C) alien D) mutinational

B

19) Which of the following must be included in the articles of incorporation? A) the minutes of the first organizational meeting of the board of directors B) the number of shares the corporation is authorized to issue C) the terms warranting corporate dissolution D) the corporate seal used in the articles of incorporation

B

3) Owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation are known as ________. A) corporate officers B) shareholders C) registered agents D) managing directors

B

32) Which of the following is true of treasury shares? A) They cannot be issued by the corporation. B) They cannot be voted by the corporation. C) They are owned by shareholders. D) They are entitled to receive dividends.

B

34) A long-term debt security that is secured by some form of collateral is referred to as a ________. A) treasury share B) bond C) note D) debenture

B

4) The ________ is a general rule of corporate law that provides that generally, shareholders are liable only to the extent of their capital contributions for the debts and obligations of their corporation and are not personally liable for the debts and obligations of the corporation. A) limited-purpose clause B) limited liability of shareholders C) preferred shareholder rule D) nonparticipating shareholder rule

B

81) ________ is a system in which each shareholder votes the number of shares he or she owns on candidates for each of the positions open. A) Cumulative voting B) Straight voting C) Supramajority voting D) Trust voting

B

87) A duty that requires directors and officers to not act adversely to the interests of the corporation and to subordinate their personal interests to those of the corporation and its shareholders is known as ________. A) the duty of care B) the duty of loyalty C) the duty of obedience D) self-dealing

B

90) Helen is the vice-president of Gotspeed Corporation, a company that designs, manufactures and sells sports shoes. Nestor, an independent entrepreneur, designs a new shoe that helps the user's foot grip the shoe better, and he calls it the Anklator. Nestor's friend schedules an appointment for him to meet Helen and present the Anklator for possible adoption by Gotspeed. Instead of presenting the opportunity to Gotspeed's board of directors, Helen pays Nestor's asking price and purchases the Anklator design for herself. She then quits and forms her own company to manufacture and sell Anklator shoes. Helen has breached her duty of loyalty to Gotspeed Corporation by ________. A) self-dealing B) usurping a corporate opportunity C) making a secret profit D) competing with the corporation

B

91) Jameson works for Fishy-Mart Corporation, a chain of superstores that sells large quantities of seafood. His job is to locate future sites for Fishy-Mart stores. Jameson finds a piece of real estate near a coastline that would make a great site for a Fishy-Mart store. He asks his friend to purchase the property from its current owner and has a secret agreement with his friend to split the profits when he sells the property to Fishy-Mart. Jameson, without disclosing his interest in the property, recommends the site to Fishy-Mart, which then purchases the property from Jameson's friend. The friend splits the profits with Jameson. What breach of the duty of loyalty has Jameson committed? A) usurping a corporate opportunity B) self-dealing C) competing with the corporation D) proxy

B

92) Marshall is a purchasing agent for DigitoolArt Corporation. His duties require him to negotiate and execute contracts to purchase office supplies and equipment for the corporation. Assume that Bronson, a computer sales representative, pays Marshall a $20,000 kickback to purchase from him computers needed by DigitoolArt Corporation. What breach of the duty of loyalty has Marshall committed here? A) competing with the corporation B) making a secret profit C) self-dealing D) usurping a corporate opportunity

B

Which of the following criteria must be satisfied for a corporation to be treated as an S corporation? A) The corporation's shareholders must be other corporations or partnerships. B) The corporation's shareholders must be citizens or residents of the United States. C) The corporation must have more than 100 shareholders. D) The corporation must have more than one class of stock.

B

14) ________ corporations are corporations that have many shareholders and whose securities are often traded on organized securities markets. A) Closely held B) Nonprofit C) Publicly held D) Professional

C

15) Which of the following is a definition of a foreign corporation? A) a corporation with incorporations in multiple states B) a corporation in the state in which it was incorporated C) a corporation in states other than the one in which it was incorporated D) a corporation in the United States which has been incorporated in another country

C

2) Which of the following entities elects members of the board of directors for a corporation? A) the CEO B) the corporate officers C) the shareholders D) the employees

C

20) A person or corporation that is empowered to accept service of process on behalf of a corporation is referred to as a(n) ________. A) promoter B) shareholder C) registered agent D) incorporator

C

21) A detailed set of rules adopted by the board of directors after a corporation is incorporated that contains provisions for managing the business and the affairs of the corporation are referred to as ________. A) ultra vires rules B) articles of incorporation C) bylaws D) corporation codes

C

23) Which of the following is true of a C Corporation? A) It does not pay taxes at the corporate level. B) Shareholders of such a corporation are not required to pay taxes on their dividends. C) Any corporation with more than 100 shareholders is automatically a C corporation for federal income tax purposes. D) Nonresident aliens cannot be shareholders unless they demonstrate due diligence in meeting federal requirements for residency status.

C

29) Which of the following shares have the right to vote? A) unissued shares B) treasury shares C) outstanding shares D) liquidated shares

C

36) Which of the following is true of a note? A) It is a long-term unsecured debt instrument that is based on a corporation's general credit standing. B) It is a long-term debt security that is secured by some form of collateral. C) It can be either unsecured or secured. D) It contains a conversion feature.

C

75) The Inkilwas Corporation has 30,000 shares outstanding. A shareholders' meeting is duly called to amend the articles of incorporation, and 17,501 shares are represented at the meeting. According to the Revised Model Business Corporation Act (RMBCA), what is the minimum number of outstanding shares that must be represented in this case to have a quorum? A) 12,001 B) 18,501 C) 15,001 D) 17,501

C

78) Suppose Lisa owns 1,000 shares of a corporation. Assume that four directors are to be elected to the board. With ________ voting, Lisa can multiply the number of shares she owns (1,000) by the number of directors to be elected (four), and she can cast all the resulting votes (4,000) for one candidate or split them among candidates as she determines. A) supramajority B) noncumulative C) cumulative D) preemptive

C

79) The Merrick and Stanley Corporation has 28,000 outstanding shares. During a proposal for a merger, the shareholders decide to increase the quorum of the vote of shareholders to 75 percent, using the supramajority voting rule. How many minimum affirmative votes would be needed to pass the supramajority voting requirement? A) 14,001 B) 21,280 C) 21,000 D) 28,000

C

83) In which of the following cases can the alter ego doctrine be invoked in a corporate civil case? A) when shareholders bring a lawsuit on behalf of the corporation after the corporation failed to do so itself B) when unpaid creditors are trying to collect from shareholders a debt owed by the corporation C) when there is mismanagement of corporate stocks by the board of directors D) when shareholders are trying to collect for fraud committed by a third party

C

86) Which of the following policies helps keep a corporate officer from being sued for honest mistakes made on behalf of a corporation? A) the duty of loyalty B) the duty of obedience C) the business judgment rule D) self-dealing

C

What is common stock? What are its features?

Common stock is an equity security that represents the residual value of a corporation. Common stock has no preferences. That is, creditors and preferred shareholders must receive their required interest and dividend payments before common shareholders receive anything. Common stock does not have a fixed maturity date. If a corporation is liquidated, the creditors and preferred shareholders are paid the value of their interests first, and the common shareholders are paid the value of their interests last. Corporations may issue different classes of common stock. Persons who own common stock are called common stockholders. A common stockholder's investment in the corporation is represented by a common stock certificate. Common stockholders have the right to elect directors and to vote on mergers and other important matters. In return for their investment, common stockholders receive dividends declared by the board of directors.

1) The ________ Act of 2002 is a federal statute enacted by Congress to improve corporate governance. A) Brown-Kaufmann B) Lanham C) Glass-Steagall D) Sarbanes-Oxley

D

120) According to the provisions set forth by the Sarbanes-Oxley Act, the ________, a federal government agency, may issue an order prohibiting any person who has committed securities fraud from acting as an officer or a director of a public company. A) United States International Trade Commission B) Federal Reserve System C) Federal Communications Commission D) Securities and Exchange Commission

D

122) After a corporation has commenced business or issued shares, the corporation can be ________ if the board of directors recommends dissolution and a majority of voting shareholders favors dissolution. A) rescinded B) remanded C) administratively dissolved D) voluntarily dissolved

D

16) A corporation in the United States that has been incorporated in another country is referred to as a(n) ________ corporation. A) foreign B) domestic C) onshore D) alien

D

18) ________ are the basic governing documents of a corporation which must be drafted and filed with, and approved by, the state before the corporation can be officially incorporated. A) Debt securities B) Debentures C) Certificates of authority D) Articles of incorporation

D

22) Which of the following is true of corporate bylaws? A) They only contain rules addressing how the corporation can interact with the government. B) They are only adopted by the shareholders of the corporation. C) They are not binding on the directors or shareholders of the corporation. D) They do not have to be filed with any government official.

D

27) A ________ is a preferred stockholder's right to be paid a stated dollar amount if a corporation is dissolved and its assets redistributed. A) noncumulative preference B) cumulative dividend preference C) dividend preference D) liquidation preference

D

30) Issued shares that have been repurchased by the corporation are referred to as ________ shares. A) outstanding B) liquidated C) unissued D) treasury

D

33) Securities that establish a debtor-creditor relationship in which the corporation borrows money from the investor to whom a debt security is issued are known as ________. A) authorized shares B) preferred stocks C) common stocks D) fixed income securities

D

35) A(n) ________ is a debt security with a maturity of five years or less. A) bond B) debenture C) indenture D) note

D

6) ________ are a panel of decision makers who are elected by the shareholders. A) Registered agents B) Corporate officers C) Stakeholders D) Board of directors

D

74) A written document in which a shareholder authorizes a person to vote the shareholder's shares at the shareholders' meetings in the event of the shareholder's absence is known as a ________. A) quorum B) notice of shareholder's meeting C) certificate of authority D) proxy

D

76) The Inkilwas Corporation has 30,000 shares outstanding. A shareholders' meeting is duly called to amend the company's articles of incorporation, and 17,501 shares are represented at the meeting. If an amendment to the articles of incorporation is put to vote at this meeting, which of the following statements is true in terms of passage of the amendment? A) The amendment will not pass, since all 30,000 outstanding shares must be represented at the meeting in order to vote to amend the articles of incorporation. B) The amendment will pass if all 17,501 shares represented at the meeting vote to approve it. C) The amendment will pass if 4,376 shares represented at the meeting vote to approve it. D) The amendment will pass if 8,751 shares represented at the meeting vote to approve it.

D

82) Which of the following is true about dividends? A) Dividends are paid at the discretion of the shareholders. B) Dividends cannot be used for corporate purposes. C) Dividends will be paid to shareholders who have sold their shares prior to the record date. D) Dividends in cash or property, once declared, cannot be revoked.

D

88) Which of the following is true of cumulative voting? A) Each shareholder votes the number of shares he or she owns on candidates for each of the positions open for election. B) A majority shareholder always elects the entire board of directors. C) The cumulative voting method always applies to elections for the board of directors. D) A minority shareholder has a better opportunity to elect someone to the board of directors.

D

89) Which of the following constitutes a breach of the duty of loyalty by a corporate officer? A) straight voting B) cumulative voting C) piercing the corporate veil D) self-dealing

D

Give an account of publicly held and closely held corporations.

Publicly held corporations have many shareholders. Often, they are large corporations with hundreds or thousands of shareholders, and their shares are traded on organized securities markets. The shareholders rarely participate in the management of such corporations.A closely held corporation, on the other hand, is one whose shares are owned by a few shareholders who are often family members, relatives, or friends. Frequently, the shareholders are involved in the management of the corporation. The shareholders sometimes enter into buy-and-sell agreements that prevent outsiders from becoming shareholders.

Involuntary dissolution of a corporation that is ordered by the secretary of state if a corporation has failed to comply with certain procedures required by law is known as ________.

administrative disslution

) A panel of persons who are elected by shareholders that make policy decisions concerning the operation of a corporation is known as the ________.

board of directors

A(n) ________ is a long-term unsecured debt instrument that is based on a corporation's general credit standing.

debenture

Explain the business judgment rule and its relationship to the fiduciary duty of care owed by corporate officers and directors

directors and officers are not liable to the corporation or its shareholders for honest mistake of judgement

A corporation can be incorporated in several states.

false

A shareholder's authorization of another person to vote the shareholder's shares at the shareholders' meetings in the event of the shareholder's absence is called a(n) ________.

proxy

Stock that permits a corporation to buy back the preferred stock at some future date is known as ________.

redeemable preffered stock

A(n) ________ is a person or a corporation that is empowered to accept service of process on behalf of a corporation and is identified in the articles of incorporation.

registered agent

The ________ Act prohibits public companies from making personal loans to their directors or executive officers.

sarbanes-oxleys

A system in which a shareholder can accumulate all of his or her votes and vote them all for one candidate or split them among several candidates is known as ________.

straight voting

A requirement that a greater than majority of shares constitutes a quorum of the vote of the shareholders is known as the ________ requirement.

supramajority voting requirements

A C corporation pays taxes at the corporate level and also at the shareholder level.

true

A corporation is a foreign corporation in states other than the one in which it is incorporated

true

An S corporation cannot have more than 100 shareholders.

true

Any corporation with more than 100 shareholders is automatically considered a C corporation for federal income tax purposes.

true

Authorized shares that have been sold by a corporation are called issued shares.

true

Common stockholders receive dividends declared by the board of directors

true

Convertible preferred stock permits the preferred stockholders to convert their shares into common stock.

true

Corporation codes regulate the formation, operation, and dissolution of corporations.

true

In case a corporation's assets are liquidated, the preferred stockholders are paid before common stockholders.

true

In debt securities, the corporation is the debtor and the holder is the creditor

true

Private corporations range from small one-owner corporations to large multinational corporations such as Microsoft Corporation.

true

Secured bondholders can foreclose on the collateral in the event of nonpayment of interest or principal.

true

Many multinational corporations conduct business in another country by using a(n) ________.

use of agents

Explain the concepts of winding up, liquidation, and termination.

winding up- The process of liquidating a partnership's assets and distributing the proceeds to satisfy claims against the partnership. liquidation- aka straight bankruptcy. debtor is permitted to keep a substantial portion of his or her assets termination- terminate their contract by mutal agreement